Salesforce.com (CRM): Shares have begun to round out nicely

For my stock pick today, I’m going with an old favorite that looked like it was toast a few weeks ago … but now shares have begun to round out nicely and could (emphasis on could) be near the start of a new upleg.

I’m talking about Salesforce.com (CRM), which is a blue-chip play in the cloud computing space. Actually, the company is more “the next Oracle” in that it continues to deliver innovative software products to its thousands of corporate customers.

And, of course, all of its products are delivered on-demand, so there’s no need to install or continually upgrade at every users’ terminal; Salesforce does that centrally, and the programs are accessed over the Internet. That’s the nature of cloud computing.

The stock has had a very long run-up during the past year, and it initially got off to a good start when the market got going in early September. However, as it turned out, the stock’s inability to correct and consolidate much during the market’s spring correction (from April through August) meant that there were still lots of weak hands owning shares. And when that happens, a trend change can be on the horizon.

Sure enough, CRM plunged through its 50-day moving average on huge volume in early October; for any prudent investor, that was a signal to at least lighten up, if not bail completely. But the prudent investor also keeps such a stock on his or her radar screen—sometimes these leaders can re-base after such a decline, and that’s exactly what Salesforce.com appears to have done.

All told, the stock fell from 124 to 98, but is now sitting around 115 on light volume, in the seventh week of a basing structure. The company is set to report earnings next Thursday evening, and my guess is that if (but only if) CRM can power above 120 following its earnings report, the stock could have a good run in it. An adverse reaction, however, would likely put in a more meaningful, longer-term top.

So what’s my prediction of what CRM will do? Nice try! I don’t predict because I don’t need to. I think it’s best to keep an eye on the stock and to take a stab at it if you see a powerfully bullish reaction to its report next Thursday evening.

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Market Update

From Cabot Top Ten Trader

The overall market is still in good shape, but growth stocks have been acting funky for a couple of weeks, and today the sellers were out in force, driving the Nasdaq and many leading stocks to big losses. We're not advising wholesale selling because many stocks look just fine, but you should honor your stops and make sure no losses get out of hand. We're moving our Market Monitor to a level 7 (out of 10) and will see how the market reacts from here.